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China’s New Plan to Attract Foreign Investment Amid Geopolitical Tensions

Tensions between the largest global economies have seen an upward trajectory in recent years, prompting China to make renewed efforts to attract foreign investment.

On February 19, Chinese authorities unveiled a “2025 action plan for stabilizing foreign investment”. This initiative aims to simplify and encourage foreign capital investments in critical sectors such as telecommunications and biotechnology, as reported by CNBC.

The newly released document emphasizes the need for more transparent standards in government procurement, which has long been a concern for foreign enterprises operating in China. It also outlines a roadmap for gradually permitting foreign investments in the education and culture industries.

Jens Eskelund, president of the European Union Chamber of Commerce in China, expressed optimism about the plan’s implementation and the tangible benefits it could provide to members of the chamber. He noted that discussions regarding the opening of sectors—including telecommunications, healthcare, education, and culture—were previously mentioned by Chinese authorities, highlighting the need for clarity on public procurement requirements.

China’s move to release this action plan comes at a time when the Ministry of Commerce reported a significant decline in foreign direct investment (FDI) in January, down 13.4% to 97.59 billion yuan ($13.46 billion). This follows a substantial plunge of 27.1% in FDI for 2024 and an 8% decrease in 2023 after a prolonged period of consistent growth.

The action plan urges all regional authorities to fully implement its measures by 2025, thereby restoring confidence in foreign investments. Both the Ministry of Commerce and the National Development and Reform Commission jointly rolled out the plan through the State Council.

During a press conference, officials from the Commerce Ministry emphasized their commitment to seeing the action plan put into practice by the end of 2025, with further supportive measures expected to follow shortly.

Michael Hart, president of the American Chamber of Commerce in China, praised the Chinese government for acknowledging the significant role of foreign businesses in the economy. He expressed eagerness for further discussions to address challenges faced by their members and to establish a more equitable market access landscape.

A recent survey from AmCham China revealed that a record number of member companies are contemplating or have begun to diversify their manufacturing or sourcing away from China, contrasting with previous surveys indicating challenges in profitability post-pandemic.

Consumer spending within China remains subdued following the pandemic, with retail sales experiencing minuscule growth in recent months. At the same time, relations with the United States have worsened as restrictions on advanced technology access and tariffs on Chinese imports continue to escalate.

A Strong Signal of Change

Although many aspects of the action plan were announced previously, certain elements, such as allowing foreign companies to acquire local equity stakes using domestic loans, represent new considerations, according to Xiaojia Sun, a Beijing-based partner at JunHe Law.

Sun also mentioned the plan’s intention to facilitate foreign participation in mergers and acquisitions within China, potentially improving the environment for overseas listings. However, she noted that the key question remains the Chinese government’s commitment to executing this plan effectively.

Describing the action plan as a “very strong signal,” Sun anticipated that Beijing would follow through on its initiatives, likening the plan’s introduction to a recent high-profile meeting between Chinese President Xi Jinping and influential entrepreneurs.

This gathering, which took place on February 17, included notable figures such as Alibaba founder Jack Ma. In recent years, a series of regulatory crackdowns and uncertainty regarding future growth had diminished both business confidence and foreign investor sentiment.

Analysts at Citi emphasized the need for China to navigate carefully between retaliatory tariffs and the necessity of stabilizing foreign direct investment. They posited that Chinese policymakers are likely cautious about targeting U.S. multinationals amid ongoing trade tensions, given the significant contributions of foreign investment to technology transfer, job creation, and tax revenue.

In a perceptible shift, officials from the Chinese Commerce Ministry acknowledged the influence of geopolitical tensions on foreign investment, recognizing some companies’ decisions to diversify outside of China. They also highlighted the substantial role that foreign-invested firms play in employment, contributing significantly to job creation and tax revenues within the country.

Source
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